New Bill Could Let Retirees Donate Directly From 401(k)s
The Charity Parity Act: Making Charitable Giving Easier for Retirees
A bipartisan group of lawmakers is pushing for a new proposal that aims to make it simpler for retirees to donate to their favorite causes directly from their retirement savings. The proposal, known as the Charity Parity Act, seeks to expand existing rules to allow older Americans to donate using funds from their 401(k) or similar employer-sponsored retirement plans.
Currently, retirees can only make donations from their taxable individual retirement accounts (IRAs), known as qualified charity distributions. If they wish to use funds from their 401(k) for a donation, they must first roll the funds over into an IRA, which can result in fees and paperwork.
“This legislation makes charitable giving more accessible and equitable for retirees,” said Mark Schoeberl, an executive vice president at the American Heart Association (AHA). The AHA is just one of many nonprofit organizations that support this change, including the American Retirement Association, the American Cancer Society, the United Way, and the Salvation Army.
The proposal builds on the SECURE 2.0 Act, which was passed in 2022 and enacted major retirement savings reforms. The SECURE 2.0 Act made two key changes related to qualified charity distributions. Firstly, it adjusted the annual charity distribution limit to $111,000 for 2026, with the limit adjusting based on inflation. Secondly, it increased the age at which retirees are required to take mandatory distributions from their retirement accounts to 75 by 2033.
Mandatory distributions, also known as required minimum distributions (RMDs), are important for charitable donations from retirement accounts because they can help retirees avoid a significant tax bill. By donating their RMDs to a qualifying charity, retirees can potentially lower their taxable income, avoid moving into a higher tax bracket, and reduce their Medicare and Social Security taxes.
The Charity Parity Act aims to extend these rules to 401(k) plans, building on the success of the SECURE 2.0 Act. The proposal has garnered major support, including from two co-sponsoring senators on the Senate Finance Committee. While the bill’s passage is not guaranteed, supporters are optimistic about its potential impact.
Brian Graff, CEO of the American Retirement Association, believes that the proposal “builds on the success of SECURE 2.0 by ensuring retirement savers are treated fairly, regardless of where they hold their assets.” He also noted that by reducing administrative burdens, this legislation can encourage greater charitable giving while strengthening retirement security.
Overall, the Charity Parity Act has the potential to make charitable giving easier and more tax-efficient for retirees, allowing them to support causes they care about while maximizing their retirement savings.
